# SAP (SAP)

Sector: Enterprise software

| Field | Value |
|---|---|
| Price | $214.78 |
| Fair value (Analysts) | $302.00 |
| Discount to fair value | 28.9% |
| Fair value uncertainty (Analysts) | Medium |
| Economic moat (Analysts) | Wide |
| LSEG analyst rating (1 strong buy to 5 strong sell) | 2.04 |
| Data as of | 2026-10-12 |
| Next earnings | 2026-10-21 (confirmed) |

## In short

Investors fear that AI agents will cut the paid seats SAP prices its cloud software around, and strong cloud growth through the 2027 upgrade cycle can close the gap.

## Themes and gap

- Themes: AI disruption risk (ai-disruption), Regulation and courts (regulation-legal)
- Gap type: Can close (closable)
- Why: Quarterly cloud growth and the 2027 decisions of on-premises customers give a dated test of the seat-loss fear.

## About

SAP sells enterprise resource planning (ERP) software. Companies use this software to run finance, supply chain, and other core operations. SAP used to sell this software as a one-time license. SAP now sells most of it as a cloud subscription. Cloud revenue was 57% of total revenue in 2025 and 63% in the first half of 2026. SAP prices its main cloud ERP product by a weighted count of users, called Full Use Equivalents. The main cloud product is S/4HANA Cloud, sold as RISE to existing customers and GROW to new customers.

## Thesis

Investors fear that AI agents will let companies cut the paid users SAP's cloud software is priced around, and that AI tools will take work away from classic business software. A miss in the cloud backlog on January 29, 2026 started a sharp SAP selloff, and this fear kept the price down for most of the first half of 2026. SAP answered in April 2026 with a new API policy. The policy does not let outside AI systems plan and run their own sequences of calls against SAP data, except through tools SAP supplies, such as Joule and Business Data Cloud. The gap can close if SAP keeps posting strong cloud growth without leaning only on user counts. In the second quarter of 2026, cloud revenue grew 24% at constant currency and the current cloud backlog grew 26% at constant currency. That is evidence growth had not yet slowed the way the user-count fear implies. DSAG, the German-speaking SAP user group, criticized the API policy for unclear terms. So the policy is not yet proven, and it could draw more customer or regulatory pushback instead of new revenue. Mainstream maintenance for SAP ECC ends on December 31, 2027, so many legacy on-premises customers must decide whether to move to the new cloud product. That decision will show whether the lock-in argument holds up. The next check comes at Q3 2026 earnings on October 21, 2026. A fuller picture is likely over the next two to four quarters, as the API policy and the 2027 upgrade cycle play out.

## Checkpoints

- Oct 21, 2026: Q3 2026 results: cloud growth and cloud backlog. Status: Pending. Watch: Cloud revenue growth near 24% at constant currency and current cloud backlog growth near 25% or more pass; a clear slowdown in backlog growth or lower cloud guidance fails.
- Jan 2027 (estimate): Full-year 2026 results and 2027 outlook. Status: Pending. Watch: A 2027 outlook with cloud growth that stays above 20% and growing AI revenue passes; lower cloud guidance tied to fewer user seats fails.
- Dec 31, 2027: End of mainstream maintenance for SAP ECC customers. Status: Pending. Watch: Most large legacy customers that sign cloud contracts with SAP before this date pass; many customers that move to third-party support or rivals fail.

## Balance sheet

- Cash: €11.4B
- Debt: €8.6B
- Net cash: €2.9B
- Interest cover: 38×
- Debt due within 12 months: €1.5B
- Ratings: Moody's A1 (stable outlook), S&P A+ (stable outlook)

SAP reports in euros and has more cash than debt. Its debt is almost all Eurobonds (nominal €8.05 billion), plus €500 million of commercial paper, and SAP has no bank loans. Cash is group liquidity, debt is at nominal value (€8.2 billion at carrying value), and debt does not include leases of €1.7 billion. In the first half of 2026, SAP repaid €1.1 billion of bonds. In May, it issued €3.5 billion of new Eurobonds with tenors of two to seven years. It also drew and repaid €1.0 billion from a €2.0 billion bridge facility. Interest cover uses net interest paid of only €141 million against IFRS operating profit of €5.4 billion in the first half of 2026. Free cash flow was €6.25 billion, helped by customers who pay cloud contracts in advance. The ratings are as stated by SAP in May 2026. Goodwill of €30.4 billion is the largest asset. Net liquidity fell from €3.4 billion at the end of 2025. SAP spent €2.6 billion on buybacks, €2.9 billion on dividends and €1.0 billion on acquisitions. In July 2026, it paid about €0.9 billion more in cash for Dremio and Prior Labs. The balance sheet gives room to continue the €10 billion buyback program to the end of 2027. It also gives room for more small AI acquisitions without much new debt.

As of 2026-06-30.

Sources:

- https://www.sec.gov/Archives/edgar/data/1000184/000110465926087251/tm2621275d1_ex99-2.htm
- https://news.sap.com/2026/05/sap-successfully-places-e3-5-billion-eurobond/

## Recent events

- 2026-10-06: SAP agreed to buy TechWolf, an AI company that maps the skills and work of large workforces. TechWolf will become a core part of SAP SuccessFactors. SAP did not disclose the price and expects the deal to close in Q4 2026, after regulatory approval.
- 2026-10-06: At SAP Connect, SAP started the customer rollout of Joule Work, an AI interface that works across SAP and outside data. SAP also launched SAP Pay, a payments service inside SAP Cloud ERP, now available in the US and the UK.
- 2026-08-26: UBS lowered its rating on SAP from Buy to Neutral and raised its price target to €201. The stock had risen almost 50% in about four weeks after its July low.
- 2026-07-23: SAP reported Q2 2026 results. Cloud revenue was €6.281 billion, up 24% at constant currency, and the current cloud backlog reached €22.929 billion, up 26% at constant currency. SAP cut its 2026 non-IFRS operating profit outlook to €11.8 to €12.2 billion because of the cost of its Dremio and Prior Labs acquisitions. It kept its cloud revenue, cloud and software revenue, and free cash flow outlook. On the same day, before the results, the stock fell to about €127.5, the lowest price since November 2023. It rose about 9% the next day.
- 2026-07-16: SAP completed the purchase of Prior Labs, an AI company for tabular data, for about €0.4 billion in cash. On July 6, it completed the purchase of Dremio, a data lakehouse company, for about €0.5 billion in cash.
- 2026-05-12: At its Sapphire conference, SAP announced plans to expand its partnership with Anthropic. Claude becomes a primary reasoning and agent model inside Joule, SAP's AI assistant, and connects to the new SAP Business AI Platform. SAP continues to use more than one AI model.
- 2026-04-29: DSAG, the German-speaking SAP user group, publicly criticized SAP's new API policy. The policy does not let outside AI systems plan, select or run their own sequences of API calls against SAP data, except through tools SAP supplies. DSAG said the list of covered APIs, the fair-use rules and the contract terms are unclear, and that customers have too little time to adapt.
- 2026-02-04: SAP stock fell to €162.10, the lowest price since February 2024. Software stocks fell broadly across this period.
- 2026-01-29: SAP stock fell about 15% in one day, its worst day since October 2020. The current cloud backlog for Q4 2025 missed expectations, and SAP gave a cautious cloud outlook for 2026. On the same day, SAP announced a share buyback of up to €10 billion that runs to the end of 2027.

## Risks

- High: SAP prices its main cloud ERP product by a weighted count of users. If AI agents cut a customer's headcount, SAP's revenue from that customer can fall at renewal.
- Medium: Mainstream maintenance for SAP ECC ends on December 31, 2027. Many older customers must decide whether to upgrade to the new cloud product, pay for extended maintenance to 2030, or leave. This can bring more revenue, or push some customers to a competitor or to third-party support instead.
- Medium: SAP's April 2026 API policy has drawn public criticism from DSAG, the German-speaking SAP user group, over unclear terms and unclear coverage. Analysts warn it can raise customer lock-in and integration cost. If the backlash grows, it could slow adoption of Joule or invite regulatory scrutiny, which would weaken the case that the policy strengthens SAP's moat.
- Medium: SAP does not publish user-count data. This makes it hard to confirm whether the risk above is already happening.
- Low: Germany withholds 26.375% of SAP's dividend. A US holder can claim back part of it under the US-German tax treaty, down to 15%. In a taxable account, the 15% is usually a credit against US tax. In a tax-deferred account such as an IRA, that tax is lost.

## Links

- Page: https://picks.kamadorueda.com/company/SAP/
- History of changes: https://picks.kamadorueda.com/company/SAP/history/
- JSON with full history: https://picks.kamadorueda.com/data/company/SAP.json

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